The impending 25 percent tariffs on Mexico and Canada, set to be implemented by President Donald Trump this Saturday, may not be as all-encompassing as initially thought.
The President hinted at a potential exemption for oil during a press briefing on Thursday. "Oil is going to have nothing to do with it, as far as I'm concerned," Trump stated when questioned about the inclusion of Canadian crude in the tariff scheme. However, he left room for ambiguity, adding that oil "may or may not" be covered by the tariffs, leaving the fate of energy imports uncertain.
As reported by Newsweek, Canada, the third largest exporter of goods to the U.S., is a significant contributor to American oil imports. In 2023, Canada was responsible for 52 percent of the U.S.'s petroleum imports and nearly all of its natural gas imports, according to the U.S. Energy Information Administration. Mexico, on the other hand, accounted for 11 percent of U.S. oil imports in the same year.
The implementation of 25 percent tariffs on both countries could potentially lead to increased fuel prices for Americans, with the potential to disrupt the entire economy due to the reliance of sectors such as manufacturing, transportation, logistics, and agriculture on energy. This could lead to increased inflation, undermining Trump's campaign promise to reduce the cost of living for Americans. The energy sectors of Canada and Mexico would also feel the impact, particularly in key exporting regions like Alberta.
When further questioned about the possibility of "no oil tariffs," Trump responded, "I didn't say that. You said that." He added, "We may or may not. We're going to make that determination probably tonighton oil." The President's decision appears to hinge on pricing, stating, "It depends on what the price is. If the oil is properly pricedif they treat us properly, which they don't."
In November, Reuters reported that the president would not exempt crude oil from the tariffs on Canada and Mexico, despite industry leaders' hopes. Pierre Poilievre, the leader of Canada's Conservative Party, attributed the potential impact of the tariffs on the Canadian energy sector to the policies of the incumbent Liberal Party. He argued that the government's restrictions on pipelines and liquefied natural gas plants in Canada had "forced Canadians to sell almost all of our energy to the United States, giving president Trump massive leverage in making these tariff threats."
Trump has justified the tariffs as a means to curb the high influx of migrants and illicit drugs from Canada and Mexico and address the trade deficits the U.S. has with both countries. Goldman Sachs analysts, including Daan Struyven, warned that "The inclusion of Canada oil in a 25 percent tariff on Canada and Mexico would likely initially raise gasoline prices in the U.S. Midwest."
Kimberly Clausing, an economist and a professor at the UCLA School of Law, cautioned that "Even very high tariffs could only replace a minority of the revenue raised by income taxation, and such high tariffs would cripple the economy."
The White House has confirmed that the tariffs will take effect on Saturday. Trump also hinted that the 25 percent duties on Canada and Mexico "may or may not rise with time." Oxford Economics researchers predicted that if Trump proceeds with his tariff plans, Canada's gross domestic product would decline by 2.5 percent by early 2026, leading to a sharp rise in inflation and unemployment and potentially pushing Canada into a recession in 2025.
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